The plan was essential for the survival of the New York-based lender as “important executives” were leaving for
competitors, the bank said in an annual proxy filing. The firm
designed the awards in 2009 after it received a $45 billion U.S.
bailout to prevent its collapse amid the financial crisis.

“The Key Employee Profit Sharing Plan helped retain Citi’s
key leaders,” the bank said in the filing. “The new CEO, his
leadership team, and other key executives remained with the firm
and enabled Citi to return to sustained profitability.”

Citigroup directors are seeking to explain compensation
practices as a non-binding shareholder vote on 2012 executive
pay approaches. Investors rejected profit-sharing payouts in a
similar vote last year amid concern that they rewarded
executives too easily and gave too much cash to former CEO
Vikram Pandit. Top managers including Corbat, 52, still stand to
collect about $579 million from the plan, which began paying out
earlier this year.

“Had the board and CEO pulled back on those payments, or
negotiated smaller amounts in light of the say-on-pay vote by
shareholders, the payments would seem more credible,” said
James Post, a Boston University School of Management professor
who has written on governance and business ethics. “They have
chosen not to do so, however, and they are asking shareholders
to swallow these very large payments.”

Bailout Assistance

Citigroup Chairman Michael O’Neill, 66, led talks with
shareholders following the rejection, according to the filing.
The bank said last month that future payouts will be more in
line with performance.

Former Chairman Richard Parsons oversaw the creation of the
Key Employee Profit Sharing Plan, or KEPSP, as the bank incurred
billions of dollars of losses tied to mortgage investments. The
firm took more bailout assistance from U.S. taxpayers than any
other lender.

Corbat stands to receive $6.9 million under one KEPSP,
which covers 2010 through 2012, Bloomberg News first reported on
March 5 after analyzing company filings. Citigroup shares gained
20 percent during that period, almost matching the performance
of the 24-company KBW Bank Index.

Pandit, 56, was in line to receive about $19 million under
another KEPSP, which tracked 2011 and 2012, a period in which
Citigroup shares slumped 16 percent, data compiled by Bloomberg
show. The size of his KEPSP award was a “key concern” for
shareholders, Citigroup said in the proxy. The board ousted
Pandit in October, and he forfeited the payout.

‘Important Executives’

The executives would have received more had the lender hit
certain profit targets, the bank said. Because it missed those
goals, the plan “delivered about 76 percent of the total value
that could have been delivered,” according to the filing.

KEPSP was “a critically necessary program to retain key
members of the Citi management team in a time of substantial
uncertainty, as demonstrated by Citi’s acceptance of
extraordinary governmental assistance,” the bank said in the
proxy. It was “essential to the survival of the Citi franchise,
as important executives were resigning from Citi to work at
competitors.”

Mark Costiglio, a Citigroup spokesman, declined to identify
the executives whose departures spurred the creation of the
plan.

‘Flawed Concept’

Citigroup repaid its bailout funds in 2010 and reported its
first annual profit since the financial crisis. In 2011, the
bank announced that Pandit, Chief Operating Officer John Havens,
Chief Financial Officer John Gerspach and consumer banking chief
Manuel Medina-Mora had joined the KEPSP.

“It was a giveaway,” Post said. “It’s a very flawed
concept and it’s one that didn’t really benefit Citi from all
that we can tell.”

There will be no future KEPSP awards because they were a
“one-time” series of payouts that achieved their “original
purpose,” Citigroup said in the March 14 proxy. The lender paid
two-thirds of the money by March 15 while executives must wait
until 2014 for the rest, filings show.

The awards are tied to performance at Citicorp, the part of
the bank that contains businesses such as trading and consumer
banking. The KEPSPs excluded pretax operating losses at Citi
Holdings, the unit that contains the lender’s unwanted assets
such as distressed U.S. mortgages and Greek small-business
loans.

Minimum Levels

The KEPSP “was based on profits of Citicorp and not
Citigroup for a specific reason,” the company said in the
proxy. “To focus executives on delivering value through the
part of the franchise that could be most affected by their
business decisions made during the performance period.”

Corbat was CEO of Citi Holdings until the end of 2011.
Eugene “Gene” McQuade, who is in line for a $5.5 million KEPSP
award, has overseen the division since then. Pretax losses at
the unit totaled almost $24.5 billion for the three years
through 2012, Citigroup financial supplements show.

Executives were eligible to receive the awards once
Citicorp profit exceeded minimum levels inserted into the KEPSPs
by the board of directors. Investors told Citigroup these
thresholds were too low, making it too easy for managers to pick
up millions of dollars in payments.

The thresholds were “not designed to be target performance
levels,” Citigroup said in the proxy filing. “Rather, they
were viewed as downside protection for Citi.”

Callahan, Gerspach

Citigroup identified other executives waiting for the 2014
payout. Don Callahan, 56, head of operations and technology,
will get $6.9 million under the 2010-2012 KEPSP, the filing
shows. Medina-Mora, 62, will get $7.7 million under the
2011-2012 KEPSP and CFO Gerspach, 59, will get $5 million from
the same plan.

The KEPSP awards are separate from bonuses and salaries.
For 2012, Citigroup gave Corbat $11.5 million and Medina-Mora
$11 million, including $4.2 million cash bonuses for each.
Gerspach received $7 million while Callahan and McQuade each got
$7.5 million.

The executives received so-called performance share units,
or PSUs, as part of their annual compensation packages. The PSUs
will be paid after three years once Citigroup meets goals tied
to total shareholder returns and return on assets, the company
said last month.